THE Assembly Government could see its budget cut by more than £1bn as Chancellor Alistair Darling looks for drastic savings from Whitehall departments.

THE Assembly Government could see its budget cut by more than £1bn as Chancellor Alistair Darling looks for drastic savings from Whitehall departments.

Mr Darling is expected to use tomorrow’s Budget to propose £15bn in efficiency savings, three times higher than the £5bn figure he proposed in November.

The overall belt-tightening across Whitehall could see as much as £1.1bn cut from the Assembly Government budget.

The initial £5bn cut is intended to be made by 2011, with the additional £10bn due to be made by 2014.

Under the formula used to calculate the £16bn-a-year Assembly Government budget, the first cut would lead to a £292m reduction in the money going to Cardiff Bay, and the second an additional £584m. Taken with a £200m spending reduction already announced, the plans amount to £1.07bn less for Welsh ministers to spend.

Such a cut would be in stark contrast to the generous year- on-year rises in the Assembly Government’s spending power in the early years of its existence.

It would also present a series of difficult choices, including whether to cut education or NHS funding, for whoever wins the 2011 Assembly elections.

Mr Darling is expected to tell MPs that the recession will end either at the end of this year or early in 2010, but that public borrowing will have to rise to £175bn this year to meet spending commitments and plug the gap created by falling tax revenues.

The Chancellor will seek to soften the blow with a further £500m of investment in green initiatives, including more wind-farms off-shore .

He may also give more details of a review into the future of the Royal Mint, in Llantrisant. The institution is one of a number that could be sold off to raise cash, a list that also includes Ordnance Survey and the Met Office.

Ministers in Cardiff Bay and from the Scottish Government have sought to minimise the effects of the efficiency drive, holding a series of meetings with their counterparts in Westminster.

After a meeting with Gordon Brown in February, First Minister Rhodri Morgan said the desire for efficiency should not be allowed to “choke off” any economic recovery in Wales.

Plaid Cymru MP Adam Price said: “This is £10bn more in cuts than had been previously announced by the Government in the pre-Budget Report, and will lead to swingeing cuts in Wales of more than a billion pounds from public services, putting jobs, health and education at risk.

“This is money that will not be replaced and will be lost from Welsh public services forever, due to the appalling state of public finances under Gordon Brown and Alistair Darling.”

He added: “In a time when we should be concerned about saving jobs and promoting the development of the economy, Labour are instead forcing through measures that will lead to higher unemployment.

“Their recession-measures so far have benefited London and the south-east of England... it seems this Budget will be no different.”

A spokeswoman for the Assembly Government said: “In meetings with the Chief Secretary to the Treasury, the Finance Minister has highlighted the possible implications of efficiency savings on the Assembly Government’s budget and the possible effect on Wales, making the case to minimise the impact that UK fiscal decisions could have as we seek to lead Wales out of recession and that if there are to be efficiencies, they will be fair and proportionate.

“The Assembly Government has been, and will continue to drive efficiencies across devolved public services in Wales – we are well ahead of the game, a fact recognised by the UK Government.”

Although Mr Darling is keen to show that he is seeking out savings for the public purse, there is little appetite in Downing Street for deeper across-the-board cuts in public spending.

Labour strategists believe that despite the £15bn figure, they can still create so-called “dividing lines” with the Conservatives by promising to stick to other spending pledges.

Harriet Harman, Labour’s deputy leader, said yesterday: “You cannot cut your way out of recession, you can only grow your way out of recession. This was the lesson that was finally learned out of the depression of the ’30s.”

David Cameron, the Conservative leader, said yesterday that if his party won the next general election “the first thing we have got to get to grips with is this appalling economic and budget mess. That’s the number one priority.

“Britain is living beyond our means. We are at terrible risk under this Labour Government. We have got to sort that out.”

Government’s higher rate tax plans questioned:
next page

Government’s higher rate tax plans questioned

A key part of the Government’s tax plans for higher earners is unlikely to raise the sums predicted, an independent analysis concluded yesterday.

A new 45p rate of tax for those earning more than £150,000 a year is due to be introduced in April 2011, but the Institute for Fiscal Studies (IFS) said it was “very unlikely” the move would raise the £1.6bn anticipated by the Treasury.

The real figure will be closer to £550m, the IFS said.

Chancellor Alistair Darling, faced with spiralling public debt, could increase the planned tax rises even further in tomorrow’s Budget.

The IFS said the Government could raise £3.2bn by increasing the higher rate of income tax on earnings above £43,875 from 40% to 43%.

The sheer scale of UK debt is likely to dominate Mr Darling’s Budget. In his pre-Budget report in November, the Chancellor forecast borrowing of £118bn in the current financial year; the real figure is likely to be above £175bn.

Tax revenue from banks and other parts of the financial services sector has fallen significantly since the recession began, leaving Mr Darling with little choice but to cut public spending and raise taxes elsewhere.

James Brown, senior research economist at the IFS, said: “Alistair Darling’s income tax increases for the rich will significantly complicate the tax system, and may well raise little revenue.

“A simpler and smaller increase in tax rates across a broader range of high-income taxpayers would raise the money the Treasury is looking for more efficiently, especially if combined with measures to make income tax harder to avoid.”

Another tax option would be a 60p tax rate on earnings over £100,000, he said, which would raise £3bn.

The question mark over the 45p plan also creates problems for the Conservatives, who have so far declined to commit to scrapping the policy for fear of being portrayed as a party of the rich.

In a further sign of the political impact of the recession, the Liberal Democrats yesterday announced a shift in their tax proposals. A pledge to reduce the basic rate of tax from 20p to 16p has now been replaced with a promise to increase the tax-free personal allowance to £10,000 a year.

Party leader Nick Clegg said the new policy would save those on low and middle incomes £700 a year, with the £17bn cost met by closing “loopholes” including scrapping higher rate tax relief on pensions.

“Our plans wouldn’t add a penny to the overall tax burden, buy they would spread that burden far more fairly,” said Mr Clegg.

WalesOnline is part of Media Wales, publisher of the Western Mail, South Wales Echo, Wales on Sunday and the seven Celtic weekly titles, offering you unique access to our audience across Wales online and in print.